Monthly Archives: January 2011

Last year, three companies in the US failed to obtain a majority vote for say-on-pay. That was a surprise to me as I have written about before given that so few United Kingdom companies have experienced failures over their decade of mandatory say-on-pay.

Well, in the very first week of annual shareholder meetings under Dodd-Frank’s mandatory say-on-pay regime, we already have our first failed SOP vote. Late Friday, Jacobs Engineering filed this Form 8-K reporting a 54% “against” vote and a 45% “for” vote (as I hinted in a tweet back then). The company received a negative recommendation from ISS.

It’s not a good sign that so early in the season – out of only a handful of companies having meetings – Monsanto’s say-on-pay vote only received 65% “for” and another company’s vote did not pass. Although it’s still early, this could be a harbinger that SOP results will defy the predictions of those that felt that most say-on-pay votes would easily pass.

In the “Dodd-Frank.com Blog,” Steve Quinlivan notes that Jacobs Engineering’s vote results may be explained by the fact that they filed additional solicitation materials explaining one-time grants they had given to its executives, while the proxy statement “had only a perfunctory overview and the grants were otherwise barely addressed” (additional solicitation materials are often filed after a company receives a negative ISS report and must then actively solicit). Perhaps more disclosure in the proxy statement in the first instance would have helped? Who knows but it wouldn’t have hurt the company. To get up-to-speed on drafting considerations, consider listening to the audio archive of last week’s CompensationStandards.com blockbuster webcast featuring Mark Borges, Dave Lynn, Alan Dye and Ron Mueller (transcript coming later today).

Steve also reports about the difficulty that companies who recommended a triennial frequency in getting support for that recommendation. Of the six companies that have announced voting results so far – only two have received majority or plurality support for a triennial frequency (and each of the two had concentrated holdings).

We have posted the transcript for our CompensationStandards.com webcast: “The Proxy Solicitors Speak on Say-on-Pay.”

Poll: How Many Companies Will Receive a “Failed” Say-on-Pay Vote?

Now that say-on-pay is mandatory for US companies – and we’ve already had one failed vote under the mandatory regime – please take a moment to participate in this anonymous poll and express how you read the tea leaves:

As all subscriptions expired on December 31st, renew now if you haven’t already – or try a no-risk trial if you are not yet a subscriber.

SEC Updates Procedures for Handling SRO Rulemaking Proposals

Two weeks ago, the SEC revised its Rules of Practice – as required by Section 916 of Dodd-Frank – to change how it handles rule proposals from SROs (eg. NYSE, Nasdaq) by formalizing how it disapproves rule changes and adding transparency to the process, including allowing the submission of comments by interested parties to the SEC when the SEC provides notice of grounds for disapproval.

This truly is the week of Congressional studies issued by the SEC. Yesterday, the SEC released one more – this study is about investor access to investment professional information.

Asset-Backed Securities: The SEC Adopts Two Sets of Rules

Last week, the SEC adopted two set of rules related to asset-backed securities. One rulemaking requires ABS issuers to disclose the history of requests they received and repurchases made related to their outstanding asset-backed securities. The other rulemaking requires ABS issuers to conduct a review of the assets underlying those securities.

And back on January 6th, the SEC proposed rules that would permit suspension of the reporting obligations for ABS issuers when there are no longer of the class sold in a registered transaction held by non-affiliates of the depositor; the SEC also proposed amendments to the related ’34 Act reporting obligations. A related action from the SEC Staff is the issuance of this no-action response to American Securitization Forum.

– Pay-for-performance disclosure (how compensation is related to financial performance; Section 953)
– Pay ratios (ratio of CEO pay to average employee pay; Section 954)
– Clawback policies (clawback of the compensation of current and former officers upon restatement; Section 954)
– Hedging policies (whether company has a policy regarding the ability of directors and employees to hedge; Section 955)

This delay is not surprising given that there are no deadlines for these rules under Dodd-Frank – and given the vast number of required rulemakings that the SEC still has on its plate that do have a deadline (as noted in this WSJ article). Also note that the SEC is working with a more limited budget than was expected (as I blogged about before – and will be blogging about more soon). Looking at the new estimated timeframes for these four proposals, it’s possible that these rules may not be finalized in time to apply to the 2012 proxy season.

Note that these rulemakings are not included in the SEC’s semi-annual regulatory agenda that came out last month (and whose information is good as of September 30th, the end of the SEC’s fiscal year). Two non-Dodd-Frank rulemakings potentially are in the works according to this agenda: consolidation and enhancement of risk disclosures and requiring voluntary filers to comply with the SEC rules when they do voluntarily file.

Yesterday, the SEC released a 46-page Congressional study – as required by Section 919B of Dodd-Frank – regarding improved access to registration information about brokers and investment advisors.

And last Friday, the SEC released a 208-page Congressional Study – as required by Section 913 of Dodd-Frank – regarding the effectiveness of the standards of care required of broker-dealers and investment advisers providing personalized investment advice about securities to retail customers. Here’s a Davis Polk memo that discusses the study’s recommendations.

As all CompensationStandards.com memberships expired at the end of the year, please renew if you haven’t yet to catch today’s program. If not yet a member, try a no-risk trial now.

For those wondering how many attend open Commission meetings in person these days, I hear that yesterday’s meeting drew mostly SEC Staffers plus maybe a dozen lawyers and another dozen reporters. It’s pretty remarkable how webcasting the meetings have killed live attendance – a popular topic like SOP would have drawn hundreds in the old days. Personally, I haven’t attended an open meeting at the SEC since they began webcasting them…

Yesterday was the first annual meeting at which a say-on-pay vote was submitted to shareholders under Dodd-Frank. Right after Monsanto held its meeting, it filed its Item 5.07 8-K on the same day. The most noteworthy aspect of the Monsanto vote is that the company’s SOP passed despite a recommendation by ISS against it. However, the company garnered only about two-thirds of the vote in favor – with a third voting against it. This relatively high level of “against” votes should probably be viewed by the company as a warning sign, as mentioned on our earlier say-on-pay webcasts (a notion likely to be repeated by our experts during today’s webcast).

Also noteworthy is that notwithstanding the board’s recommendation that shareholders vote for “triennial,” shareholders selected “annual” – here is how that voting went: 62% for annual; 36% triennial; 1% biennial, and 0.5% abstentions. Even though this vote in non-binding, the company went ahead and disclosed in its Form 8-K that it would implement an annual SOP vote (as also reflected in this press release). However, the company was mum about the potential ramifications of the significant “against” votes on its SOP – understandably so since it may take the company some time to internally process the results (and engage shareholders to better understand why so many “against” votes were cast)…

SEC Proposes New “Accredited Investor” Definition

Yesterday, the SEC also proposed a new “accredited investor” definition – as required by Section 413(a) of Dodd-Frank – that would amend Rules 215(e) and 501(a)(5) under the ’33 Act to revise the net worth standard for natural person accredited investors to exclude the value of their primary residence from the calculation. Here’s the proposing release and press release. Bill Carleton intends to analyze this proposal soon in his blog so check that out…

We have posted the survey results regarding the latest Regulation FD trends, repeated below. This new survey supplements two prior surveys that we have conducted on this topic, the last of which was in 2006 (note that I included the results of the 2006 survey results in parens below for comparison purposes):

1. Our company posts information on its corporate website and takes the position that this is sufficient to satisfy Reg FD:

– Yes, our company takes this position for anything posted on its corporate website – 5.6% (3.8% in ’06)
– It depends, our company takes this position for certain items posted on its corporate website (but not all) – 16.7% (28.3%)
– No, our company does not yet take this position – 77.8% (67.9%)

2. Our company has a written policy addressing Reg FD practices:

– Yes, and it is publicly available on our website – 9.1% (5.6% in ’06)
– Yes, but it is not publicly available on our website – 69.1% (60.4%)
– No, but we are in the process of drafting such a policy – 1.8% (15.1%)
– No, and we do not intend to adopt such a policy in the near future – 20.0% (18.9%)

3. Regarding reaffirmation of earning announcements, our company uses one of the following rules of thumb regarding private reaffirmations:

– We do not allow private reaffirmation – 76.0% (60.8% in ’06)
– Rule of thumb allowing for private reaffirmations of one week or less – 6.0% (7.8%)
– Rule of thumb allowing for private reaffirmations of one to two weeks – 6.0% (13.7%)
– Rule of thumb allowing for private reaffirmations of two to three weeks – 4.0% (9.8%)
– We permit private reaffirmations – but never use a rule of thumb, instead we require confirmation of no material change with CEO, GC, etc. – 8.0% (7.8%)

4. At our company, our CEO and other senior managers: (multiple answers apply, may total more than 100%):

– Are not permitted to meet privately with analysts – 3.7% (6.7% in ’06)
– Are only permitted to meet privately with analysts so long as someone else accompanies them (such as general counsel or IR officer) – 46.3% (35.0%)
– Are permitted to meet privately with analysts after briefing by IR officer, general counsel, etc. – 24.0% (18.3%)
– Are only permitted to meet privately with analysts during certain designated times – 33.3% (18.3%)
– Are not permitted to talk about certain topics – 37.0% (33.3%)

Webcast: The Latest Developments: Your Upcoming Proxy Disclosures and the New Say-on-Pay Rules

Assuming the SEC posts the adopting release later today for its new say-on-pay rules, tune in tomorrow for the CompensationStandards.com webcast – “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay including analysis of what the adopting release says.

If the adopting release is not posted today, we will push back this program to Tuesday, February 1st so that these experts can provide you their guidance on this important rulemaking. Stay tuned!

As all CompensationStandards.com memberships expired at the end of the year, please renew if you haven’t yet to catch this program. If not yet a member, try a no-risk trial now.

In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 153 companies filing their proxies, 54% triennial; 8% biennial; 31% annual; and 7% no recommendation. These are fairly close to the percentages seen earlier – so the relative ratios remain pretty steady so far. But many more companies will be filing over the next month or so and could disrupt current trends…

NACD’s Perspective on Say-on-Pay

In this CompensationStandards.com podcast, Peter Gleason of the National Association of Corporate Directors explains the NACD’s perspective on say-on-pay, including:

– What is the NACD’s position on the SEC’s proposed say-on-pay rules?
– What are potential business risks and consequences of the proposed say-on-pay rules if they are not changed before adopted by the SEC?
– What are the potential implications for directors and boards once the say-on-pay rules are finalized?
– How does the NACD suggest the SEC amend the proposed say-on-pay rules?
– How is the NACD preparing its members and the director community to address new say-on-pay, and other rulemakings, associated with Dodd-Frank?

A week ago, the SEC brought a rare enforcement action involving perks when it charged NIC Inc. and four current or former officers with failing to disclose more than $1.18 million in perks paid to the former CEO over a six-year period. Correct me if I’m wrong, but this is the first perks case that the SEC has brought since this Tyson Foods settlement in 2005 (and this General Electric order from the year before that). The company and three of the officers agreed to pay a combined $2.8 million to settle the charges.

The SEC alleges that NIC Inc.’s SEC filings failed to disclose that the company footed the bill for wide-ranging perks enjoyed by the former CEO, his girlfriend, and his family – including vacations, computers, and day-to-day personal living expenses and that NIC’s related party disclosures for 2002 through 2005 also were misleading. Among the alleged undisclosed perks for Fraser outlined in the SEC’s complaints filed in federal court in the District of Kansas:

– More than $4,000 per month to live in a ski lodge in Wyoming.
– Costs for Fraser to commute by private aircraft from his home in Wyoming to his office at NIC’s Kansas headquarters.
– Monthly cash payments for purported rent for a Kansas house owned by an entity Fraser set up and controlled.
– Vacations for Fraser, his girlfriend and his family.
– Fraser’s flight training, hunting, skiing, spa and health club expenses.
– Computers and electronics for Fraser and his family.
– A leased Lexus SUV.
– Other day-to-day living expenses for Fraser such as groceries, liquor, tobacco, nutritional supplements, and clothing.

In his blog about this action, Mike Melbinger notes: “The SEC’s allegations make this seem like an egregious situation. However, this action is still a bit frightening to those of us who are making a variety of tough calls each proxy season on whether to report certain items as perquisites.” And here is Paul Hodgson’s take on the circumstances…

Webcast: Alan Dye on the Latest Section 16 Developments

Tune in tomorrow for the Section16.net webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation. As all Section16.net memberships expired at the end of the year, renew now to catch this program. If you’re not yet a member, try a no-risk trial now.

Also on Section16.net, the annual Romeo & Dye year-end compliance checklist, designed to assist companies and compliance officers in integrating the Section 16 compliance program with the year-end 10-K/proxy statement disclosure process, has been updated for 2011.

Deadline: S&P 500 Companies Owe Contact Information to ISS

S&P 500 companies should remember that they have until next Monday – January 31st – to provide contact information to ISS. If ISS doesn’t receive the information, companies will not receive their proxy analysis for review and thus lose the chance to correct factual inaccuracies before an ISS report is released on the company. This is a new policy and an important omission if a S&P company fails to comply.

Following in Apache’s footsteps, KBR filed this complaint last week in an effort to have the Federal District Court for the Southern District of Texas issue a declaratory judgment allowing the company to exclude a shareholder proposal submitted by John Chevedden due to his alleged lack of eligibility. Reflected in this blog, you’ll recall that Apache received this type of relief last proxy season in the exact same court (based on similar introductory broker letter facts, with the case brought by the same lawyer).

Like Apache, KBR filed a lawsuit rather than attempt to exclude the proposal through the normal SEC channels (and thus once more is challenging the Hain Celestial position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b)). Here is KBR’s notice to the SEC of its intention to file the lawsuit.

Jim McRitchie blogs that Apache has decided to exclude a proposal from John Chevedden again this year too (this time around, the company has filed a notice with Corp Fin – thus not going the no-action route like last year – but isn’t bothering with another lawsuit this year). Jim also notes this Houston Chronicle article on the KBR lawsuit.

Proxy Access Litigation: The SEC Files Initial Brief

On Wednesday, the SEC filed its 83-page initial brief in the challenge to its proxy access rules filed by the Business Roundtable and the Chamber of Commerce in the U.S. Court of Appeals for the District of Columbia Circuit. I understand the court plans to hold its oral argument hearing on April 7th. We have posted the brief – along with the other briefs filed to date – in our “Proxy Access” Practice Area.

On Thursday, the SEC Staff submitted its Congressional study on enhancing investment adviser examinations, required under Section 914 of Dodd-Frank. As noted in this article, “the premise of the report is that the number of investment advisors outweighs the SEC’s resources to conduct appropriate oversight (inspection and enforcement) activities.”

In an unusual move, SEC Commissioner Elisse Walter felt compelled to issue this 8-page statement to discuss the growing burdens on the Staff, while resources continue to be dangerously low (and that Congress hasn’t even approved the budget increase that Dodd-Frank sought). Kudos to Commissioner Walter for highlighting a troubled situation…

Last year, I passed along my sour grapes about spending time on Twitter as I felt the effort wasn’t worth the reward because most of our community was not participating (here’s a related blog about the importance of face-to-face networking). But as Dominic Jones breaks down this report from Q4 Web Systems on his IR Web Report, it appears the acceptance level of Twitter by IR departments is reaching some sort of critical mass (and in this follow-up blog, Dominic notes that tweeting has become so popular that IROs need to work harder to get noticed). And if that’s the case, outside lawyers better get up-to-speed with what Twitter is – and isn’t – so they can have intelligent conversations with their clients.

As Dominic relates in the excerpt below, the use of IR web pages to promote the use of Twitter by IROs has been mixed, without a valid reason to do so:

The report highlights a key issue with current corporate use of social media – a lack of visibility for companies’ social media accounts on their websites. While all of the surveyed companies have Twitter accounts, the report says almost 40% do not post a link to the channel on their websites. This likely understates the situation because the study authors are flexible on what constitutes a link on the corporate website.

The authors say that in their discussions with companies “some prefer not to include Twitter on their website as they are still ‘testing’ the channel.” The report rightly recommends that companies acknowledge the existence of their Twitter accounts on their websites. Without a link on the company website, it is difficult for users to verify the Twitter account as legitimate. And while companies my believe that not acknowledging their social media accounts on their websites shields them from liability, in reality they are still liable.

And it’s clearly not just IROs taking to social media, check out Dominic’s blog about how a CEO recently responded to a short-seller on the increasingly popular Seeking Alpha.

Not that I don’t find Twitter valuable myself, but I figured I would appeal to the fact that clients are using social media as a way to convince our community to start using social media. Social media is here to stay folks. You’ll need it to work – and to play. Don’t be one of those people that thought the Web was a fad back in ’97 (or that television was one back in ’58). Here’s some good info on how to use Twitter…

What Would Corporate Secretaries Blog About? Plenty

As I continue to beat the drum about how the future will see many more lawyers, IROs and corporate secretaries blogging, I often get the question: “well, what would I blog about?” I think this recent blog by Microsoft’s Deputy GC John Seethoff – entitled “Responding to Shareholder Input on Executive Relocation Policy” – is a perfect example of what a good corporate secretary could be blogging about.

In five paragraphs, not only does John explain a change to the company’s relocation policy – more importantly – he provides an example of how his company is engaging shareholders. My guess is that this will provide comfort to other shareholders (and potential investors) about the willingness of the company to listen – and likely would lead to more shareholders being willing to voice their concerns directly to management rather than go the activist route. As you can see, it doesn’t take a whole lot of effort to blog (ie. five paragraphs is just a few minutes and then I imagine, there was a brief review by others) – and the resulting pay-off can be quite large for such a small burden.

How Not to Tweet: Law Firm Styling

On Twitter, I follow a few of the first law firms that started tweeting. As expected, their tweets were so bland that I can’t recall a single one as having any value. They were all about the latest hires they had – and which deals they worked on. Stuff not significant for me (nor clients or potential clients I imagine).

Which is why when I recently saw a law firm open a Twitter account and excitedly send an email that said “Following us on Twitter provides immediate access to market information that can impact your business,” I took a gander at what they had been tweeting – even though I had a pretty good hunch what their feed would be about. Sure enough, it was mostly about their own internal movings and shakings and little about anything that someone outside the firm would really care about (and merely tweeting the latest law firm alerts isn’t much better – Twitter needs the human touch). Why most firms can’t figure out how to communicate effectively by placing themselves in their client’s shoes is beyond me…

We have winners! The 39% that guessed that the SEC would adopt final say-on-pay rules shortly after January 21st are right! The SEC has calendared an open Commission meeting next Tuesday, January 25th to adopt these rules, as well as propose a new definition of “accredited investor” and propose reporting obligation for investment advisors to private funds.

In this podcast, Stasia Kelly of DLA Piper provides guidance on how to handle a corporate crisis, including:

– What should a “Crisis Plan” include?
– What advice do you give to Boards about crisis management – both before and during a crisis?
– What should in-house counsel do to prepare for a crisis?

More on our “Proxy Season Blog”

With the proxy season in full swing, we are posting new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Analysis: Common Corp Fin Comments for Proxies
– Survey: Corporate Governance Practices
– The Virtual Meeting Failure: Symantec Points Finger
– A Proxy Is Not A Vote And Why It Matters
– Proxy Plumbing: Analysis of Comment Letters
– Proxy Season: A Harbinger or the Lull Before the Storm?

In Friday’s blog, I conducted a poll regarding your guess as to when the SEC would adopt final say-on-pay rules. The 30% who believed that the SEC would adopt them before or on January 21st (which is the date of annual meetings that Dodd-Frank begins to apply mandatory say-on-pay) are proven wrong because the SEC has now calendared an open Commission meeting for this Thursday – but the two agenda items apply to asset-backed securities and not SOP.

So we shall now see if the 38% who believed the SEC would act before the end of this proxy season are right – or the 28% who believed it would be after the proxy season. Or the 10% who believed they would never be adopted. PS – The math doesn’t add up to 100% because folks were allowed to make more than one selection.

AICPA Conference: Notes and Corp Fin Presentations

As it typically does, the SEC has posted these PowerPoint presentations used by its staffers during last month’s annual AICPA Conference:

On Friday, the Financial Accounting Foundation bumped the FASB Board back up to 7 members by announcing that Daryl Buck, CFO of Reasor’s Holding Company, and Harold Schroeder, Partner of Carlson Capital, have joined the Board.

PCAOB Issues Staff Practice Alert on Litigation & Loss Contingencies

In late December, the PCAOB issued a Staff Audit Practice Alert #7 highlighting auditing considerations related to litigation and other loss contingencies arising from mortgage and other loan activities. Here is analysis from Tom White of WilmerHale: “The Alert stems from recent reports regarding possible liabilities from alleged misrepresentation of mortgage quality as well as irregularities in the foreclosure process. The Alert parallels the SEC’s recent “Dear CFO” letter regarding accounting and disclosure issues related to potential risks associated with mortgage and foreclosure-related activities. Like the Dear CFO letter, the PCAOB alert notes the standards for loss contingencies, and the alert specifically notes the standard (AU 337) for auditing litigation, claims and assessments, including obtaining letters from the reporting entity’s lawyers.”

Last week, the SEC delegated authority to its Chief Accountant to propose and adopt rules from the PCAOB – among other things – in an effort to streamline the process.